A seminar on the topic “Draft Law on Special Consumption Tax (amended) and the Beverage Industry” was held by the Vietnam Chamber of Commerce and Industry (VCCI) and the Vietnam Beer, Alcohol, and Beverage Association on August 8.
THE BEER INDUSTRY CREATES THOUSANDS OF JOBS
At the seminar, Ms. Anh emphasized the important role of the beer industry in the economy. According to data from Oxford Economics, the beer industry contributed $555 billion to global GDP, created 23 million jobs, and contributed $66 billion in taxes to governments worldwide in 2019.
In Vietnam, the Institute for Strategy and Policy Research in Industry and Trade, under the Ministry of Industry and Trade, reported that although the beer industry accounts for only about 3% of the labor force, it contributes up to 7% of the added value in the food processing industry and accounts for about 6% of the total production value of the entire industry. It contributed nearly VND 60,000 billion ($2.6 billion) in taxes to the state budget in 2023.
For Heineken Vietnam, the report by consulting firm Steward Redqueen, calculated using an economic model created by a Nobel Prize-winning economist, showed that in 2023, Heineken Vietnam created 3,355 direct jobs and more than 172,000 indirect jobs across the supply chain, including 54,000 jobs in the hospitality industry across the country.
Thus, for every direct job at Heineken, 51 jobs are created in the auxiliary supply chain. In 2023, Heineken Vietnam contributed 0.5% to the country’s GDP and 2.1% to the total national tax revenue, equivalent to VND 33 trillion ($1.4 billion) in taxes contributed to the state across the entire value chain, a significant decrease compared to 2022.
“Therefore, increasing the special consumption tax on beverages will also strongly affect the production and business activities of enterprises,” emphasized Ms. Anh.
THE TAX INCREASE NEEDS A SUITABLE ROADMAP
In the dossier on the draft amendment to the Law on Special Consumption Tax submitted to the Government, the Ministry of Finance proposed to tax all alcoholic beverages, fermented foods from fruits and cereals, and mixed drinks with food-grade alcohol.
Accordingly, two options for calculating the special consumption tax were proposed for beer and alcohol.
Option 1: The special consumption tax on beer and alcohol above 20 degrees will increase from 2026 to 70%; 2027 to 75%, and increase by 5% each year until 2030 to 90%. For alcohol below 20 degrees, it will increase to 40% in 2026 and increase by 5% each year until it reaches 60% in 2030.
Option 2: The special consumption tax on beer and alcohol above 20 degrees will increase to 80% in 2026 and by 5% each year until it reaches 100% in 2030. For alcohol below 20 degrees, it will increase to 50% in 2026 and by 5% each year until it reaches 70% in 2030.
Regarding the draft amendment to the Law on Special Consumption Tax this time, Ms. Anh said that the tax increase needs a suitable roadmap. Heineken proposed that the tax rate for beer should remain stable at 65% for the first three years from the effective date of the amended Law on Special Consumption Tax, and then increase by 3-5% every three years.
Heineken assessed that the tax increase must be in line with the Vietnamese economic scenario. According to the World Bank’s 2024 Doing Business in Vietnam report, GDP growth in an optimistic scenario is expected to reach 6.5% by 2026. So, we see that four years after normalization after the Covid-19 pandemic, GDP growth has not reached the pre-pandemic level of 7.02% in 2019.
The government has emphasized solutions to prioritize economic growth, maintain macroeconomic stability, control inflation, and ensure the major balances of the economy. The government has had many packages to support and accompany enterprises to overcome difficulties and recover the economy. In the past period, input costs have increased significantly, especially logistics costs due to geopolitical contradictions globally.
“We estimate that in 2026, with Option 1, when the tax rate is increased by 5% higher than the current regulation, the selling price will increase by 10%. With Option 2, when the tax rate is increased by 15% higher than the current regulation, the product price will increase by 20%. Thus, any price increase in the current difficult period will lead to a decrease in output and budget revenue,” analyzed Ms. Anh.
In addition, the Heineken representative cited the Laffer Curve theory, which states that when the tax rate exceeds the optimal point, the goal of increasing state budget revenue will be seriously affected due to a sharp drop in sales.
For example, in Belgium, in November 2015, the government increased the special consumption tax on spirits by more than 40%, with an expected additional revenue of €128 million for the first six months of 2016. However, due to a 33% drop in sales when the price of spirits increased by more than 20%, the government’s revenue did not increase. At the same time, consumers turned to buying spirits in Luxembourg and northern France. These areas have seen sales double.
Or in the UK, at the beginning of 2023, the government increased taxes on alcohol. Alcohol sales fell by 20%, and tax revenue from alcohol fell by £108 million in just six months. By the end of 2023, the UK had stopped raising taxes.
Similarly, Australia expected a loss of AU$170 million in revenue when it increased alcohol taxes. “We believe that the policy of amending the special consumption tax needs to refer to international experience,” Ms. Anh suggested.
SPECIFY TAX RATES FOR DIFFERENT TYPES OF ALCOHOLIC BEVERAGES
Moreover, Ms. Anh said that the current tax table in the draft law is inconsistent. The effect of alcoholic beverages is due to the alcohol content in the product. Therefore, the special consumption tax can be used as a tool to regulate and encourage the innovation, production, and consumption of products with lower alcohol content to protect consumers’ health.
Thus, according to the Heineken representative, the most practical solution is to specify the special consumption tax rates for different types of alcoholic beverages. Other countries also recommend this, especially since alcohol tax is always higher than beer tax because of its greater harm. This is also consistent with the current regulations in the Law on Prevention of Harmful Effects of Alcohol and the Law on Advertising, which classify beer into three groups with alcohol content of less than 5.5 degrees, from 5.5 degrees to less than 15 degrees, and above 15 degrees. Therefore, Heineken proposes: The 65% tax rate applies to beer products with an alcohol content of 5.5% or less, and increases gradually with higher alcohol content.
In addition to a relaxed and reduced tax rate to match the roadmap and economic scenario, the level of improvement in consumers’ income in the coming years, according to Ms. Anh, needs to be combined with responsible drinking awareness programs. And separate the tax table to create incentives for innovation, production, and consumption of products with lower alcohol content, creating consistency and fairness between alcohol and beer products.
“At the global Heineken Group, we have implemented a responsible drinking program worldwide. We disseminate programs that guide consumers to consume alcoholic beverages in moderation. In Vietnam, Heineken has had a 16-year partnership with the National Traffic Safety Committee to change consumers’ perceptions through the program ‘If You Drink, Don’t Drive.’ We have successfully organized 800 communication events and reached about 30 million people with the message ‘If You Drink, Don’t Drive,’ “said Ms. Anh.
Moreover, it is necessary to change consumers’ perceptions in line with the goal, instead of sudden tax increases that cause consumers to turn to using products of unknown origin, affecting their health and causing budget losses.
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